Which clients won't be covered by the Ontario pension plan

by Will Ashworth18 Dec 2014

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Which clients won't be covered by the Ontario pension plan

Associate Finance Minister Mitzi Hunter released the ministry’s white paper on the key design features of ORPP yesterday. Below is a list of the important stuff, including what if any provision has been made for the rapidly expanding number of entrepreneurs in the province. It's a group advisors continue to focus on.

1. It’s meant to enhance the third pillar of our retirement system which includes RRSPs. The first two being Old Age Security/Guaranteed Income Supplement and CPP.

2. Will mirror key features of CPP. This will help accommodate any future enhancement of the federal government’s pension plan.

3. It aims to replace 15% of an individual’s earnings for life. Contributions would be made on earnings up to $90,000 in 2014 dollars less the $3,500 minimum earnings threshold. This matches the CPP minimum threshold.

4. Benefits would be indexed to inflation protecting an individual’s purchasing power.

5. There will be mandatory contributions by employers similar to CPP. Both employer and employee would contribute a maximum of 1.9% of the employee’s annual earnings up to $90,000. At the maximum an additional $3,400 would be contributed to ORPP annually. The Ontario government estimates $3.5 billion will be invested in the plan each year starting in 2017.

6. In addition to pooling longevity risk, the plan also allows individuals to share the “investment risk” of lower-than-expected returns by spreading that risk across a larger group of people diversified by age.

7. Possibly the most important feature of the ORPP design: the funds are locked-in meaning they can’t be accessed until retirement age preventing the withdrawal of funds for short-term financial pressures that usually pass.

8. Portable across participating employers which is helpful to younger workers who will change employers more often.

9. Very little help for self-employed individuals. During consultations starting in January the provincial government will explore ways to do so including mirroring CPP which allows for self-employed contributions.

10. Potential to expand to other provinces and revisit enhancement of CPP. The Ontario government’s always maintained that CPP enhancement is the way to go. Unfortunately, the federal government doesn’t agree.

Considering there was $280 billion in unused RRSP contribution room as of 2012 and almost 50 per cent of Ontario workers did not participate in either an RPP or RRSP, it’s not hard to see why Ontario is trying to fast track ORPP.

Given the retirement readiness of most Ontarians – it’s not good – anything that can improve the fate of future generations is a step in the right direction.